How to Manage Commission Exceptions Once You have Identified the Risk

Its great to know there’s a commission risk but what are you going to do about it? Who will dig into it? Who can tell you the dollar amount that this may impact? Who will approve it and make sure we don’t see it next month? 

There has been great strides made when it comes to commission risk but how companies manage those exceptions have not improved. There are always multiple departments involved when it comes to resolving an exception. Whether its sales operations, sales compensation, finance, hr and/or payroll.

So how do you create a process that helps manage these exceptions?

Many organizations are able to detect commission risk but lack an effective exception management process. Which leads to missed payout dates, excessive manual intervention and unhappy sellers. Its not only finding commission risk we need to look at how we can manage exceptions once we find them.

1. What is a commission exception and why are we struggling?

Commission exceptions can happen at any time. Orders may not hit the system until after the payout date, sellers change territories, customers cancel orders etc. Sometimes commission plans will calculate commission in ways you didn’t expect.

When companies don’t have a formal exception management process it can create delays when trying to resolve these issues.

Let’s look at a scenario. 

Company has 1,500 reps that receive commissions each month. At the end of the month sales compensation finds 120 commission exceptions. Some may be from orders that weren’t found, maybe the order was attributed to the wrong territory or commission calculated higher then it should of due to an accelerator.

Now we have analysts that are digging into emails to try and figure out what needs to be fixed. Finance isn’t sure which exceptions could potentially impact our incentive spend and Payroll is trying to get a confirmed payout amount from sales comp.

When you don’t have a process to manage these exceptions you will end up spending more time correcting errors than you should. Not only does this create an inefficient process it can also cause your company to over/under pay your sellers.

2. Create an exception category 

Once you know what exceptions you are finding it’s best to create categories that can help you understand the severity of the issue.

You may want to create a list of commission exceptions such as; Transaction exceptions, sales credit exceptions, calculation exceptions, policy exceptions and manual adjustments.

Having a list of these can help determine which steps you need to take when finding the exception. If an exception is for a $500 transaction you may not need to go through the same process that you would for a calculation exception that could potentially overpay your sellers $250k.

By categorizing your exceptions you’ll know what process to follow when you come across them.

3. Determine exception priority 

Just because an exception came in doesn’t mean you need to jump on it right away. Some exceptions will have more urgency than others. You may want to consider how much money the exception could impact, how many reps it affects and if its something that could delay your payroll process.

If you have 100 exceptions coming into your team. Maybe 20 of those exceptions are high dollar amount calculation errors. There may be 30 sales credit exceptions and 50 other transaction exceptions that just need to be corrected.

It’s best to manage your exceptions by creating a priority list. That way you can focus on what needs your attention the most. You may also want to set dollar amounts that require finance involvement.

4. Know who is responsible for what 

Once you have identified what exceptions you need to address you need to know who owns the issue.

Do you have a process in place that tells you who should look into a certain exception? Are your sales operations team validating that the transaction is correct? Is sales comp digging into the sales credit? Does finance need to review any exceptions that exceed a certain dollar amount? Do you have HR involved? 

There are many departments that can be involved when it comes to managing commission exceptions. Make sure you have a process in place that outlines who needs to take action on each exception.

It’s also important that you have a record of each exception and how it was resolved. This can include what the commission calculated to, what it needed to be corrected to and how it was paid out.

5. Let your sellers know what happened 

Once you have identified and resolved your exception make sure you inform your sellers. They need to know what happened and why they were paid what they were paid.

Maybe your seller was paid less commission then they thought they should of because their order wasn’t credited to the right territory. By fixing the commission and paying them out you are creating more confusion for your seller. Make sure you let them know why they were corrected and what you did to fix it.

You may also want to look at what is causing these exceptions to happen in the first place. Are you constantly having to adjust commissions because orders aren’t hitting the system until after payout date? Look into ways you can prevent these issues from happening in the future.

 6. How to measure your exception management process 

How do you know if your process is working? By creating metrics around your exceptions you can determine where you are failing and improve on those areas.

Some metrics you may want to track are;

a. Number of exceptions per month 

b. Time it takes to resolve an exception 

c. Amount of money your company could have over/under paid due to an exception

d. Number of times an exception has occurred in the past

e. % of exceptions resolved by due date 

f. Number of disputes from your sellers 

Having these numbers will allow you to see where you can improve your sales compensation process.

Conclusion 

Finding commission risk is only half the battle. You need to know how to manage those exceptions once you find them. Create a process that allows you to classify your exceptions, know who owns them and communicate with your sellers when things don’t calculate correctly.

How do you manage your commission exceptions?